Exemption to the rule

Most employers take for granted that salaried employees are exempt from receiving overtime, but a recent spike in class action wage discrimination lawsuits has prompted employers and the Department of Labor to take notice of employee classifications that are nearly 30 years old.

In some cases, employers don’t pay overtime or enough overtime when it is required; in other cases, employers deduct from employee salaries when they shouldn’t, and plaintiff attorneys are taking advantage of employers’ mistakes.

“Employers don’t look at the regulations carefully. They don’t take the time, and operate under misconceptions,” says Regas.

And this opens them up to litigation.

Some of the problems are due to the confusing and often antiquated regulations that, until recently, hadn’t been changed to meet new job duties.

Previously, tests based on salary levels and work duties determined whether an employee was qualified for overtime, but those definitions were vague. The regulations used terms like “regularly exercises discretionary powers” and “management of enterprise” to describe exempt salaried employees.

In response, Congress has passed new standards for exempt and nonexempt employee classifications under the Fair Labor Standards Act. The rules are designed to clear up the confusion surrounding job duties, moving some employees into the exempt category while moving others out. The rules will affect as many as 6.5 million U.S. workplaces.

“Now there are two tests (long and short) for the three major office exemptions … and each test has two components — salary and duties,” Regas says. “Now is a good time to correct any policies that allow improper salary deductions … because by taking an improper deduction, you destroy the employee’s exempt status.”

One of the most notable FSLA changes is that now employees are considered exempt if they “hold a position of responsibility,” changed from an employee who “customarily and regularly exercises discretion and independent judgment.”

With the old regulations, some employees, like IT workers, could still qualify for overtime.

“With technical positions … someone could be making $80,000, and you still have to pay them overtime. The new proposals just give you a hint as to how complicated and convoluted the regulations (were),” Regas says. “This helps give some clarity … and it’s not going to set off a wave of audits.”

These proposals could affect as many as 110 million employees and provide employers an excellent opportunity to re-examine the status of employees without the risk of back-pay lawsuits.

Regas stresses that, “It’s good time for employers to make changes and not alert the work force that mistakes were made in the past.”

Last fiscal year, the government collected nearly $143 million in back wages for violations of the Fair Labor Standards Act, which requires employees to be paid overtime. How to reach: McDonald Hopkins, (216) 348-5834 or www.mcdonaldhopkins.com

The long and the short of it

Changes in the Department of Labor’s Fair Labor Standards Act address both the salary and duties tests used to determine whether an employee is exempt.

The rules eliminate the long test rule that restricted exempt employees from devoting more than 20 percent of their workweek to performing duties that were considered nonexempt. Employees can now be classified based on their primary duty.

Under the old rules, an employee earning $155 a week can qualified as a white-collar employee not entitled to overtime pay. The changes raise this minimum salary to $425 a week.

The changes guarantee overtime to an employee working 42 hours a week supervising a machine shop for $17,000 a year. They also allow deductions from the salaries of exempt employees for full-day absences taken for disciplinary reasons, such as sexual harassment or workplace violence.

Previously, only hourly workers were subject to deductions. The salary-basis rule prohibiting deductions from exempt salary for partial-day absences remains. Source: U.S. Department of Labor

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